Nineteen months have passed since Russia invaded Ukraine, shocking the world and the global diamond market.
Russia is the world’s largest exporter of diamonds by volume, with state-owned company Alrosa mining almost a third of all diamonds produced in 2021.
To prevent money from flowing into the Kremlin’s war chest, the U.S. – the world’s largest market for polished diamonds – took action last spring when President Joe Biden banned imports of rough diamonds from Russia and the U.S. Treasury imposed sanctions on ALROSA.
Sanctions have also been imposed by other countries, including the United Kingdom, which announced an outright ban on Russian diamonds earlier this year.
The EU made several attempts to impose sanctions on Russian diamonds last year but was blocked by Belgium over protests in Antwerp, Belgium’s main gem trading hub. Its representatives expressed concern that, in addition to the difficulties in tracing the true origin of diamonds, the sanctions could give Antwerp’s competitors, such as Dubai and India, a competitive advantage in the Russian diamond trade. Not everyone agrees.
“For some, the diamonds sold in Antwerp are more important than the battle we are fighting,” Ukrainian President Volodymyr Zelensky said last year.
Now, the diamond industry is bracing for sanctions from the Group of Seven (UK, Canada, France, Germany, Italy, Japan and the US) and European bloc that will ban the import of gemstones mined in Russia, including those cut and polished in other countries.
“Current U.S. sanctions only cover Russian rough diamonds or diamonds cut and polished in Russia,” said Paul Zimnisky, a diamond industry analyst in the New York City area. “Given that 90% of diamonds are cut and polished in India and can therefore be classified as Indian gemstones, the current regulations are not as stringent as you might think.”
But he said some responses were “far more stringent than required by government regulations”, with a number of high-profile luxury brands including Richemont and LVMH Moët Hennessy Louis Vuitton telling suppliers that they Will not buy Russian gems, place the blame on these suppliers. Suppliers disclose the provenance of their stones.
More governments with strong economies are expected to join the new effort. Consumers in the G7 countries account for almost 70 percent of all diamond purchases, according to Brad Brooks-Rubin, senior adviser to the U.S. State Department’s Office of Sanctions Coordination.
“If the import ban is approved, Russian diamonds will have narrower access to the market, cutting off much of their demand,” he said. “All discussions are about how to target ALROSA and Russian diamond revenues, and then Use it in the war effort.”
The G7 sanctions are expected to be formally announced in September, and negotiators are still hammering out the exact terms for tracking and tracing individual gemstones and accompanying customs documentation. These new sanctions are expected to take effect in January, after the all-important holiday retail season.
If there is a shortage of non-Russian diamonds after more sanctions are imposed, jewelry shoppers may see price increases, but the price increases are likely to come gradually rather than suddenly. The industry has been anticipating the move.
The question is whether an industry, largely made up of small businesses, organized around a stone’s quality, size, and color (rather than its origin) can separate stones and produce accurate documentation classifying them by origin. This challenge can be further exacerbated by multiple supply chain vulnerabilities as diamonds travel across borders from the mine, through a difficult-to-regulate global network of intermediaries, and finally to consumers or industrial use.
Hans Merket, a researcher at the International Peace Information Service, an independent research organization, said diamonds may change hands 20 to 30 times between the mine and the market. “Finding the right balance between ambition and reality is very important,” he added, because “getting everyone in the right direction and restructuring this complex global supply chain” could take years, not months.
Another headache? Russia is known for producing melee diamonds, which are mostly sold in large quantities. Mr Brooks-Rubin said the new G7 sanctions would likely only cover polished gemstones of one carat or larger, although smaller stones could be included later.
Tiffany Stevens is CEO and General Counsel of the Jewelers Vigilance Commission, a New York City-based nonprofit Focusing on ethics instead of regulation and policy advocacy, she said the breach required major changes in the diamond industry. In the course of its operations, it has had time to prepare for new requirements brought about by stricter rules.
“The G7 sanctions heighten the pressure on Russia and also provide clear boundaries on how trade can enforce the sanctions,” she said. “But our industry is also very fragmented and global, and many people in the industry are still outside their remit.”
new challenge, new order
Despite continued diplomatic action, including sanctions against ALROSA’s chief executive, who was appointed in May, industry analysts say Russian diamond exports are approaching pre-invasion levels, although some import locations have changed.
Karen Rentmeesters, spokeswoman for the Antwerp World Diamond Centre, which represents the city’s diamond industry, said official imports of Russian rough by the gemstone center had fallen by around 95% from pre-conflict levels because of the conflict. Sanctions on trade flows and payments, and on local traders and manufacturers complying with the wishes of key customers and partners.
China has now become a major new port of call for Russian diamonds, a new center for cutting and polishing in ex-Soviet countries such as Armenia and Belarus, and the volume of rough from the country has increased significantly. Strategically located between East and West, Dubai has also benefited from existing sanctions with the recent influx of Russian companies.
The Indian city of Surat, which cuts and polishes 90 percent of the world’s rough, continues to process Russian diamonds without running afoul of Western governments. Indian Prime Minister Narendra Modi has resisted Western pressure to impose sanctions on Russia or scale back economic ties with the Kremlin.
But U.S. authorities have frozen some diamond transactions by Indian traders suspected of handling Russian gems, posing challenges for traders in Surat and Mumbai. Overall, the industry says thousands of low-wage cutting and polishing jobs are at risk.
To offset potential damage to local trade and maintain employment, the Indian government and its gemstone industry have dramatically increased investment in the manufacture of lab-grown diamonds (which require the same cut and polish as natural gemstones), already a major industry in India. For the country. In June, Modi presented first lady Jill Biden with a 7.5-carat rhinestone during a visit to the White House. The gesture is diplomatic in light of the recent plunge in market value of lab-grown diamonds from India, which has been heavily exported to the US.
Is technology enough?
“Russia has stepped up diamond sales in recent months in an attempt to regain market share lost last year due to trade disruptions,” Mr Zimnisky said.
However, according to the Global Rough Diamond Price Index released in June, the market has been sluggish as the popularity of man-made diamonds, a slowing economic recovery in China, an uncertain macroeconomic backdrop and the ongoing war in Ukraine have led to a downturn.
For sanctions negotiators and the wider industry, the focus is on whether new technologies can provide an airtight and verifiable solution to determining the provenance of gemstones.
Currently, customs officials require a government-issued certificate to guarantee that the diamonds meet the requirements of the United Nations-backed Kimberley Process, which aims to prevent the flow of conflict diamonds. The certification requirement has been a step forward, but as Skender Nasra, an adviser to Belgian Prime Minister Alexandre De Crowe, points out, the approach is seen as having major flaws.
“We’ve been trying to find a more effective way to fight Russia,” he said, “and that’s sanctions, whose remit is to steer the industry into using tracking technology and blockchain. That’s rubber-stamping or self-auditing loopholes.” and ultimately the only sure way to keep Russian gems out of the country, even if it takes years to successfully implement the plan.”
Following the breach, De Beers expanded the Tracr platform to allow other companies in the diamond industry to participate, while the Gemological Institute of America launched a consumer-facing service called GIA Verified Provenance, which will verify the origin of diamonds. country of origin.
Swiss company Spacecode, which already provides technology to track diamonds through the supply chain, now says it has a new device that can identify the origin of individual diamonds and intends to sell them by the end of 2024. Sarine has also launched a traceability system called “Diamond Journey”, which first 3D scans the rough stones in the mine, and then records each subsequent step to the retailer.
There may be a lengthy transition period before sanctions are imposed. In the short term, transactions are expected to rely on audits.
“Naturally, some well-resourced major players will adapt, but the SMEs or family-owned businesses that are the cornerstone of the jewelery industry will have a tougher time,” Ms Stevens said.
Mr Zimniski added that “we are still a long way from having the technology to track the chemical composition of stones available industry-wide”, although he noted that the trade was already moving in that direction. Those efforts have just been accelerated by demands related to Russian sanctions.
